How to monitor ARs: FCA shares best practice

THE Financial Conduct Authority (FCA) has released guidance to help principal firms enhance their monitoring of Appointed Representatives (ARs), according to the BVRLA. The report highlights common areas where principals can improve their practices, particularly around self-assessments, annual reviews, and onboarding processes.

This guidance comes nearly two years after the FCA introduced new rules and expectations for principal firms, which took effect on December 8, 2022.

The FCA’s review of 270 firms revealed that one in five had not completed the required checks related to self-assessments and annual reviews. Additionally, most principals were found to be using onboarding and termination procedures that predate the FCA’s 2022 changes.

The report offers specific examples of good practice and areas for improvement in the following key areas:

Self-assessments: Conduct thorough reviews, ensuring they are signed off by the governing body and address all relevant areas of the AR regime.
Annual reviews: Document reviews comprehensively, demonstrating active engagement with ARs and addressing any identified risks or issues.
Monitoring, oversight, and acting out of scope: Utilize a variety of information sources to actively monitor AR activities, including reviews, financial accounts, and consumer feedback.
Approach to onboarding ARs: Implement robust onboarding processes that consider AR business models, potential harm, and conflicts of interest.
Termination, offboarding, and orderly wind-down: Establish clear termination procedures that facilitate a smooth and orderly wind-down of AR relationships.

Key Takeaways for Brokers

All firms that currently work with, or intend to work with, ARs are strongly encouraged to review the FCA’s findings and evaluate their own internal processes. Ensuring compliance with the FCA’s expectations is crucial for maintaining a healthy and successful AR relationship.

By implementing the best practices outlined in the FCA’s report, brokers can strengthen their oversight of ARs, mitigate risks, and contribute to a more robust and consumer-focused financial services industry.

For further information, brokers can consult the full FCA report and seek guidance from compliance professionals as needed.